By Andrew Williams —

On February 26, 2014, the Supreme Court heard oral arguments in two cases dealing with the attorney fee-shifting provision of 35 U.S.C. § 285.  In the first case, Octane Fitness, LLC v. ICON Health & Fitness, Inc. (Supreme Court docket number 12-1184), the issue on appeal was what constitutes an "exceptional case" such that attorney fees can be awarded to the prevailing party.  The Federal Circuit had developed a two-part test, which included both an objective component ("objectively baseless") and a subjective component ("subjective bad faith").  Except for a few questions from the Justices that would suggest some deference to the Federal Circuit, no one appeared to be advocating for maintaining this test.  Instead, the Justices seemed to struggle with what the appropriate standard should be — as Justice Kennedy put it "this is a search for adjectives."  The choices for when a case could be considered exceptional seemed to range from "frivolousness," to "objectively baseless," to "gross injustice," to "objectively reasonable," to "just let the District Court decide."  There was no clear indication from the questioning where the Court as a whole was leaning on the issue.

Rudolph Telscher, on behalf of Octane Fitness, summed the issue up in his rebuttal as:  "What we're all really talking about here is how extreme should the test be for an exceptional case.  I mean, that's what this boils down to."  However, just what the test should be turned out to be a moving target.  Mr. Telscher began by asserting that the test should be whether the case was "meritless."  Justice Scalia challenged him on this standard, because in his mind, every non-prevailing case is meritless ("Don't you have to add something to meritless?  I mean, every time you win the summary judgment motion, that's a determination that the claim is without merit.").  However, he didn't like Mr. Telscher's proffered alternative, "unreasonably weak," either ("[Y]ou realize how differently various District Courts would operate if you just say, what was your phrase?  Unreasonably week?").  Mr. Telscher then settled on "objectively unreasonable," which he explained was something less than frivolous.  In response to a question by Justice Sotomayor about what the difference would be between his test and the Federal Circuit's "objectively baseless" test, he responded that "baseless" connotes "absolutely no foundation or zero merit," while he believes that the test should be "something less than frivolous."  Mr. Telscher also indicted that "without substantial merit" or "low likelihood of success" would be two additional ways to articulate his proffered standard.

Justice Alito challenged Mr. Telscher on whether they should incorporate a subjective standard into the test.  Of course, Mr. Telscher did not think that bad faith was required, but that it could be considered in conjunction with a weak case on the merits.  The problem Justice Alito had with such a determination was how to articulate it to the district courts ("How am I supposed to determine whether the case is exceptional if the standard is, take everything into account, litigation misconduct, the strength of the case, any indication of bad faith, and decide whether it exceptional?  Exceptional compared to what?").  He was concerned that lower court judges might not have the requisite experience with patent attorneys, and after all, "[t]hey are different from other attorneys."  This discussion actually appeared to clear things up for Justice Scalia, because he stated that "you really cannot answer the question of what adjectives should be attached to 'meritless,' . . . [because] it is a totality of the circumstances test, that is only one factor and it doesn't have to be an absolute degree of meritlessness."  Of course, when pushed by Justice Kagen for all the factors that can be considered in this "totality-of-the-circumstances" test, Mr. Telscher suggested that it should be a non-exhaustive list — "anything that bears on the gross injustice and the uncommon nature of the case."

Carter Phillips argued the case on behalf of ICON Health and Fitness.  Of course, he was mainly playing prevent defense, suggesting that whatever standard the Court settled upon, the actions of ICON would not fall within that standard.  Nevertheless, he advocated for the "objectively baseless" standard, with or without a subjective component.  He got some of his toughest questioning from Justice Breyer, who was silent during Octane Fitness' presentation.  Justice Breyer made clear his concerns about the patent system, and the quality of patents that were being issued by the Patent Office (especially with regard to software patents).  In fact, it appeared to be the opinion of Justice Breyer that if the test was "objectively baseless," it could never be met ("[W]hy cannot I, the district judge, say, I've seen all these things, taken together they spell serious injustice, and therefore I'm shifting the fees.  Okay?  Why can I not do that even though, as I've just said and repeat, I cannot in honesty say it's frivolous given the standard for patenting that seem to be administered?").  And, echoing a comment made in the Prometheus decision, Justice Breyer suggested that that patent attorneys seem to have the ability to get anything patented ("Patent attorneys are very brilliant at figuring out just how to do this.").

To be fair, Mr. Phillips did not define "objectively baseless" as "frivolous."  Instead, it was Mr. Phillips's impression that that "baseless" meant "unjustified and vexatious," which in turn meant that the case had "to have enough merit to be — to satisfy the standards of probable cause" (meaning in this context that the case had to have enough merit to go forward).  Nevertheless, Justice Breyer seemed to want to just let the district court decide when a case was "exceptional" — "[w]ell, let's send it back and tell them that they were imposing a standard that was too narrow, that didn't take account of all the circumstances where something could be unusually unjust, and then let them, no clear and convincing, but it's up to you, district judge.  You're the expert on litigation.  You decide."  Mr. Phillips did not like this approach because he was concerned that what would be considered an "exceptional" case would be unevenly applied ("There are lots of disincentives for plaintiffs to bring this case.  And at the end of the process, based on a completely indeterminate standard, the district court would then retain authority to say, I conclude what you did here is unreasonable.").

Justice Ginsburg asked why the Court should not just use the same standard as that in the Lanham Act, after all, both statutes use the same language.  In Lanham Act cases, an exceptional case is one that is not run of the mill, or uncommon, as Justice Ginsburg suggested.  Mr. Phillips had a couple of reasons why this would be inappropriate.  First, the two statutes have had two entirely different histories, and therefore two entirely different sets of case-law interpreting them.  Second, Mr. Phillips suggested that if the two statutes were to be reconciled, it should be the Lanham Act that should be made to comport with the Patent Act, because the Patent Act came first.

Roman Martinez, Assistant to the Solicitor General, argued on behalf of the United States.  It was the United States' opinion that the test should revert back to the understanding of the law back when the 1952 Patent Act was enacted — "to prevent gross injustice."  However, with the connotation that "gross injustice" has today, this sounds like a very high barrier to an award of fees, and the Court seemed to struggle with this.  As Justice Kagen put it, "[g]ross injustice, I mean that's really really exceptional.  That sounds like 'shocks the conscience.'"  However, Mr. Martinez assured the Court that the "gross injustice" standard was not so difficult to meet, and that, in the end, it essentially comes down to a totality-of-the-circumstances test, with a list of non-exclusive factors to consider.

It is often difficult to determine the outcome of a case based on the questioning from the bench.  This case is no exception, although it is highly unlikely that the Federal Circuit two-part test will stand.  We will provide an analysis of the Highmark oral hearing in a future post, and we will, of course, provide an analysis of both opinions when the Court issues them, which should occur before the end of June, 2014.

By Andrew Williams —

As we have reported over the past couple of weeks, the Supreme Court will hear arguments in two cases involving the attorney fees provision of 35 U.S.C. § 285 on Wednesday, February 26.  That statute provides that a "court in exceptional cases may award reasonable attorney fees to the prevailing party."  These cases will be heard shortly after the Court convenes at 10:00 A.M. Eastern.  The first of the cases listed on the Hearing List, Highmark Inc. v. Allcare Management Sys., Inc., relates to whether the lower court's determination regarding attorney fees is entitled to deference.  Specifically, the question presented was: whether a district court's exceptional-case finding under 35 U.S.C. § 285, based on its judgment that a suit is objectively baseless, is entitled to deference.  The second listed case, Octane Fitness v. Icon Health and Fitness, involves how a court is to determine when a case is exceptional.  The specific question presented was:

[W]hether the Federal Circuit's promulgation of a rigid and exclusive two-part test for determining whether a case is 'exceptional' under 35 U.S.C. § 285 improperly appropriates a district court's discretionary authority to award attorney fees to prevailing accused infringers in contravention of statutory intent and this Court's precedent, thereby raising the standard for accused infringers (but not patentees) to recoup fees and encouraging patent plaintiffs to bring spurious patent cases to cause competitive harm or coerce unwarranted settlement from defendants.

We have already explained the factual and procedural history of both cases, and highlighted the arguments presented in the briefs submitted by the Petitioners and Respondents in both cases (see "Supreme Court Preview — Octane Fitness, LLC v. ICON Health & Fitness, Inc." and "Supreme Court Preview — Highmark Inc. v. Allcare Health Mgmt. Sys., Inc.").  The amicus curiae briefs in the Octane Fitness case unanimously supported a change in the standard for an exceptional-case determination (even though some of them filed briefs in support of neither party).  They also almost all supported a standard that applies equally to plaintiff patent holders and defendant accused infringers.  In addition, almost all recognized the incentives that the current Federal Circuit standard provides for patent holders to assert their patents abusively (although they portrayed very different pictures of the state of the problem).  What was interesting, however, was the different approaches and alternatives suggested for what the standard should be.  For example, should the district court only look to whether the position of the non-prevailing party was "objectively baseless," or can the subjective intent of the party ever be considered.  Because it is very possible that the Court will adopt one of these new standards, it is worthwhile to review some of the suggestion and arguments presented in these briefs.  This post addresses a selection of the amicus curiae briefs.

United States Amicus Curiae Brief

It is generally advisable when reviewing various amicus curiae briefs for a given case to begin with the brief for the United States.  This is because not only is the Solicitor General provided special attention by the Court, but in this case, Roman Martinez, Assistant to the Solicitor General, is scheduled to argue for the United States.  In this case, the United States is advocating a totality of the circumstances test.  Specifically, according to the United States, the lower court should be able to consider whether the losing party had inflicted "gross injustice" on the prevailing party before or during the case.

To support its position, the United States looked to the history of 35 U.S.C. § 285, including its adoption in 1952.  This statute was based on one that was introduced in 1946, but did not include the "exceptional case" limitation.  Nevertheless, the legislative history suggested that the new provision was not intended to change the substantive standards for granting fee awards.  Therefore, according to the United States, the standard should be the same as that used between 1946 and 1952.  During this time, "grossly unjust" conduct could support a fee award, and such conduct included fraud on the Patent Office, willful infringement, harassing tactics during litigation by either party, or untenable legal or factual theories.  This standard did not have to rise to the level of objective baselessness, because fee awards were made when the theories were "unjustified," "wholly unjustified," "unwarranted," "unreasonable," or "groundless."  Also, "subjective bad faith" was not required, although the United States argued that it could be highly relevant to the Section 285 analysis.  Finally, the United States urged that "clear and convincing" evidence should not be required for an accused infringer to be awarded fees.  The United States did not take a position on whether the present case was an exceptional case under the proffered standard, but instead requested that the case be vacated and remanded.

Amicus Curiae Briefs From Participants in the Patent System

Several different companies that own and assert patents filed amicus curiae briefs, either alone or as part of a collection.  In general, they pointed out that as owners of intellectual property and as frequent targets of abusive litigation tactics, they have a balanced perspective and unique insights into the issue.  For example, a collection of seven intellectual property owners, Yahoo!, the New York Times, NetApp, Medtronic, General Mills, EMC, and Boston Scientific, filed a brief in support of petitioners in both cases.  This collection of companies is somewhat interesting, because it includes two (Medtronic and Boston Scientific) that were on opposing sides of a recently decided Supreme Court case.  In an articulated standard much like the one proffered by the United States, this collection urged the adoption of a test that would "afford[] a district court discretion to enter a fee award in favor of a plaintiff or defendant whenever it would be grossly unjust or inequitable for the prevailing party to bear its own costs."  Brief at 5.  And, just like the United States, this collection pointed to the period just before the enactment of 35 U.S.C. § 285 for support.  However, they also pointed to the statute itself as giving three "guideposts" for a district court to follow.  These are that "exceptional" cases are meant to be those that are "uncommon" or "extraordinary," that prevailing plaintiffs and defendants are to be treated equally, and the trial court should have discretion to make the grant determination, as well as the amount.

Another collection of intellectual property owners, 3M Co., General Electric Co., The Procter & Gamble Company, and Johnson & Johnson, also filed a brief advocating a flexible standard.  Specifically, they urged the "adoption of a flexible standard that permits 'district courts in patent cases to consider traditional equitable factors, guided by the purposes of patent law, in granting fee awards' under Section 285."  Brief and 4.  This collection also acknowledged that there is a problem of abusive patent litigation, but they went out of their way to defend patent assertion entities, explaining that they serve a valuable purpose in the patent system.  For example, they pointed out that the U.S. patent system has always been based on a disclosure system, and that patent holders have never been requirement to practice the invention.  In fact, this collection stressed that greater than 60% of the inventors of the Industrial Revolution sold or licensed at least some of their patents, including Thomas Edison and Charles Goodyear.

Another collection of "leading providers of high-technology products and services" filed anamicus curiae brief supporting a flexible standard.  This collection included Google, Cisco Systems, Facebook, HTC, Intel, LinkedIn, Motorola Mobility, Netflix, Newegg, Rackspace, salesforce.com, T-Mobile, Verizon, and Vizio.  Specifically, they asserted that there should be no exclusive list of factors that can make a case exceptional under § 285, but that these factors should all be considered together.  Importantly, they requested a disjunctive approach in which subjective bad faith and objective reasonableness can either be used as an independent bases for fee-shifting.  Therefore, bad faith alone can support an award of attorney fees.  Another collection, this one entitled BSA | The Software Alliance, disagreed, and instead asserted that "objectively unreasonable" should be the standard.  The standard was summarized as "[a] losing litigant that persists in advocating a claim or defense lacking an objective basis in law or fact should pay the winning party's fees."  Brief at 2.  BSA | The Software Alliance did not think that a subjective component should be included because common law already allows for fee-shifting when the lower litigates in bad faith.

The final participant in the patent system to file an amicus curiae brief (not including the Intellectual Property Owners Association), and the only one to do it on its own, was Apple.  Apple's brief was in support of the patent system, but it came out strong against so-called "patent trolls."  It advocated a flexible standard that would look to a host of factors relevant to the particular litigation.  Specifically, Apple advocated for the inclusion of such factors as "the nature of the parties, the motivations underlying the parties' positions, the objective merit of both parties' claims and the particular arguments advanced in court, and the parties' conduct."  Brief at 9.  Only then, according to Apple, will the fee-shifting provision of § 285 function properly to deal with "patent assertion entities that thrive on strike suits, nuisance suits, and in terrorem demands."  Brief at 7.

Amicus Curiae Briefs From "Anti-Troll" Representatives

There were several briefs that were filed for organizations and individuals that focused more on the so-called "patent troll" problem then on what the appropriate standard should be for what an exceptional case should be.  For example, the Electronic Frontier Foundation, et al., ("EFF") spent almost its entire brief explaining how the current standard was allowing patent trolls to thrive, and therefore harming small businesses, start-ups, and American innovation.  Only near the end of its brief did the EFF advocate for a flexible test that considers the totality of the circumstances.  The EFF would look to whether the "Plaintiff brings an objectively weak case or uses the cost of defense as a weapon."  Brief at 17.  Not surprisingly, the EFF focused almost exclusively on when the non-prevailing party is the patent holder.  Therefore, it did not address the sort of factors one would look when the accused infringer was the non-prevailing party, if they would even be entitled to an award under the EFF's scheme in the first place.

To their credit, however, the EFF did provide a somewhat workable test, even if it was one-sided.  Professor Robin Feldman and the U.C. Hastings Institute for Innovation Law filed an amicus brief urging the Court to adopt a standard which would "empower courts to remedy schemes that exploit the patent system."  Instead of articulating a standard, Prof. Feldman railed against the Federal Circuit's standard and the abuses that have stemmed from it.  One of the "abuses" that she cites is that of reverse payments in Hatch-Waxman litigations.  However, she does not explain how section 285 could be used to stop such "abusive schemes."

As a final example of the "anti-troll" amicus briefs, a collection of thirty (30) states, including Vermont and Nebraska (but not Illinois), filed a brief advocating overturning the Federal Circuit's precedent.  Like the other "anti-troll" parties, these states urge a standard that does not provide for a shift of fees when the accused infringer is the non-prevailing party.  Instead, the states submit that the district courts should "have discretion to award fees where the patentee's claim had an objectively low likelihood of success and a fee award is otherwise appropriate."  Brief at 27.  They also urged the Court to consider the broader context – and unfortunately they asserted that this broader context was that the patent system is broken.  For example, in addition to addressing the "attorney fee" problem, the collective states extoll the other problems of the patent system, including the Federal Circuit's test for personal jurisdiction, the lenient pleading standards allowed by Form 18, and the cost of litigating vague and ambiguous patent claims caused by the Federal Circuits "insolubly ambiguous" test for 35 U.S.C. § 112, ¶ 2.  Of course, the Supreme Court is taking up this last issue in the Biosig Instruments, Inc. v. Nautilus, Inc. case, but it is unclear how the Court is supposed to "take into account" these other problems to address how an "exceptional case" is determined.